You have probably read about Third Party Managed Accounts in the legal press.
But what are they, exactly? How do they work, and what are the costs?
On paper, a TPMA is a simple way to de-risk a law firm. So we thought it would be a good idea to speak directly to one of the main providers to find out more.
Here is our interview with Geoff Dunnett of Shieldpay.
Hi Geoff – Can you explain the background to third party managed accounts? What problem is the new system trying to solve?
Third-Party Managed Accounts were born out of the legal Services Board consultations in 2015 around suitable alternatives to law firms holding client money. These are firmly introduced as part of the new SRA Accounts Rules under Rule 11.
The problem that TPMAs are looking to solve is the risks associated with firms holding client money and whether a workable solution could be found so that firms might no longer need to hold client money. Allowing firms to concentrate on providing quality legal advice rather than needing to also specialise in payments and fraud prevention.
The main issues and risk that exist across the industry are:
- Differing standards of AML checks
- Firms misusing client accounts by providing banking facilities
- Firms aiding money laundering activities
- Misappropriation of client funds
- Ever increasing vulnerability of firms falling victim to cyber fraud
- Simple misdirection of funds and human error
By introducing FCA regulated entities in this process, you are leveraging the supervisory capabilities of a regulator who specialises in these types of issues.
What are the advantages for firms and their clients?
- The platform provides visibility on the status of funds at all times
- Control residual client balances and stay Rule 2.5 compliant
- Reduces the risk of money laundering
- Reduces operational and regulatory risk
- Removes SRA Compensation Fund contributions
- Recognised as good risk management by regulators and insurers
- Improves visibility, including comprehensive statement reports
Is a TPMA suitable for all practice areas? Conveyancing?
A TPMA is suitable for all practice areas. Shieldpay has firms doing private client, Personal Injury, litigation, commercial, corporate and property law. Shieldpay has conveyancing firms that are now accepted on major lender panels using a TPMA.
Outside of the law, Shieldpay also has lender clients using the TPMAs to secure distribution and collection of loans.
Would we need to retain our accounts staff?
For firms with an accounts team, Shieldpay is providing them with a new and more efficient tool to use and they are the ones that are maintaining transactions on the platform with fee earner having oversight and authorising transactions on the platform. This may mean that some account staff will not be needed or it will mean that they are able to provide greater value to the business by having streamlined processes in place that help mitigate a firms risk.
What other factors should a firm have in mind when considering a move from a traditional client account to a TPMA?
How many different solutions and providers does a firm have? A TPMA can provide in one solution client onboarding checks, card processing and outsourced client account services.
How often does a firm use its client account today vs the cost of maintaining it and the stress of handling the compliance and governance issues around this.
It does not need to be an overnight shift and can be phased. A TPMA may also be used alongside maintaining a client account for specific high value or complex transactions or for transactions where there may be questions around a firm’s ability to hold funds and remaining compliant with the SRA Accounts Rules. In particular Rule 3.3 of providing banking facilities.
What are the costs, and who pays for the service?
There is a monthly management fee paid by the law firm and a per payment fee set as a fix % of each payment out with a minimum of £15 payable by the client as a disbursement. The monthly fee and the per payment fee % are determined based on the expected transaction volume.
What is the legal relationship between the client, the TPMA provider and the law firm?
The client is both the client of the law firm and of Shieldpay. The law firm sets out in its engagement terms the relationship between the law firm, TPMA provider and client.
Under the Shieldpay TPMA terms which can be found on the following link, the Professional Representative (law firm) is mandated by their client to make and authorise payments relating to funds held by Shieldpay.
Who is responsible for AML due diligence?
The TPMA provider will be responsible for undertaking AML due diligence as part of their FCA obligations. They are the ones handling the funds, and so responsible for ensuring that all necessary checks have been undertaken. A firm may choose to place reliance on the due diligence undertaken by the TPMA provider or undertake their own separately.
Geoff Dunnett Is part of the founding team and Professional Services Director at Shieldpay. Geoff is a qualified solicitor and practised as a Project Finance lawyer at Milbank, Tweed, Hadley & McCloy LLP and Mayer Brown International LLP, before working as an independent legal consultant to startups and lastly as a Business Associate for the Techstars-Barclays tech accelerator. Geoff has lead the business and product development of Shieldpay’s award-winning Third-Party-Managed Account and Corporate Escrow offering, including the building partnerships and the support of key industry stakeholders.